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On Nov. 7, Parliament debated the proposed hike to the Goods and Services Tax (GST) and a top-up to the Assurance Package.

Members of Parliament for the opposition Workers' Party, Louis Chua and Jamus Lim, spoke out against the hike and laid out their reasons for doing so.

Louis Chua

Chua said that he opposed the GST hike, saying that the timing of the rise could not be worse, and it would be "irresponsible" to continue. He also said there were a significant number of fiscally viable alternatives that the government had not sufficiently considered.

Chua raised three points. First that the GST raise was not needed currently, second that the current rate of inflation made the tax rise particularly harmful, and third that while there were relief measures, those were temporary, but tax raises were "forever".

GST raise not needed currently

Chua brought up the difference between how much money the government had estimated it would spend, versus how much revenue it had managed to take in. The initial support package had been funded by a better-than-expected fiscal outturn in the 2021 fiscal year.

He suggested that spending less than expected on the Omicron wave earlier in the year meant that the government had now seen its primary deficit improve by S$5.7 billion, which was "more than sufficient to cover the recent S$1.5 billion support package".

With the announcement of a second S$1.5 billion support package in October, after the first one announced in June by Deputy Prime Minister Lawrence Wong, Chua asked about the government's fiscal position, and questioned the need to push through the GST raises at this moment.

Inflation would make GST hike particularly harmful

Chua said that predictions that headline inflation would average 1.5 per cent to 2.5 per cent in 2022 had turned out to be incorrect, and that the Monetary Authority of Singapore now expected headline inflation to average 6 per cent in 2022. It also expected it to remain between 5.5 and 6.5 per cent in 2023.

Saying that Wong had warned that it was unlikely that Singapore would return to a period of low inflation, Chua asked if there was a need to add an additional one per cent increase to the cost of living.

He compared it to scoring an own goal when your team is five-nil down.

Tax rises are forever

He ended his speech by saying that the assurance packages were temporary, while a GST hike was "forever", and that the impact of the assurance packages might be diminished over the next five years in the face of inflation, although he did acknowledge the most recent top-up of S$1.4 billion to the Assurance Package by Wong.

He acknowledged the positive impact of the packages, calling them a  "welcome salve for the low-to-middle income households", but asked if those households would be "on the hook" for higher GST rates after the assurance packages wore off, given a possible persistent inflationary environment.

Jamus Lim

Jamus Lim, Chua's fellow WP MP from Sengkang, spoke about his opposition to the GST rise, but also said that if it had to be implemented, it was worth the government considering exempting essential items from the rise, or implementing a multi-rate tax.

Likely lead to more inflation

Lim said the GST hike would likely lead to further inflation. While he said it was welcome that the GST hike was spread out over two years, the environment of persistently high inflation continues.

Lim gave the example of Japan which, under a better inflationary outlook, increased its own sales tax thrice. Each time it saw its inflation rate double for about a year, and he warned about Singapore's "already unbearable levels" of inflation doubling.

"Now, to be completely fair, it should be noted that Japan’s hikes occurred in a more benign inflationary environment, which could have amplified (the) effects of the GST hike on inflation outcomes. It is nevertheless difficult to envision conditions where the impending GST increase would not give rise to another bout of inflation."

He acknowledged that the government convened the Committee Against Profiteering to head off unjustified price increases, but questioned how effective the Committee would be in distinguishing which are the merchants who took the opportunity to jack up prices, given the high inflationary environment.

Inflation in essential items

Secondly, Lim pointed out that inflation was greatest in essential items such as food.

He gave an example of residents he met on walkabouts, saying that inflation could not only be at 7 per cent where their cai png (economy rice) had increased from S$3 to S$5 and their power bill "doubled".

He therefore proposed to temporarily exempt certain categories of essential goods from the GST hike, which are subject to greater price volatility, and make up a bigger share of the household budget.

Multi-rate GST

Third, Lim said that Singapore's revenue collection service should be able to match the sophistication of other advanced economies and be able to handle a multi-rate GST system.

He argued that the current system of differing vouchers, credits, and rebates were more complicated to administer than a such a system.

Lim acknowledged the government's stance that a multi-rate GST could make exemptions regressive and benefit higher income households more, and said this was true in most circumstances, but the current high inflation is a generalised rise in prices and affects everyone.

Structural Change and differentiated GST

Fourth, Lim argued that structural change would occur slowly, meaning that while government spending on things like healthcare was expected to go up, if it increased at a steady pace, the GST hike could be postponed in the short term as it would make a substantial difference to families in the present.

Finally, Lim said that the present moment provided an opportunity to test in real life a differentiated GST regime. Lim suggested a pilot programme where selected basic necessities would see their GST rise temporarily postponed.

This, he said, would allow the Ministry of Finance to adopt its customary pragmatic approach, testing options, and calibrating the scope of policy accordingly.

In conclusion Lim said that while he did not support the increase in the GST, there were several ways the government could still go ahead while throwing a "lifeline" to struggling Singaporean families.

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Top image via MCI (Singapore)/YouTube